The Securities and Exchange Board of India (“SEBI”) had vide the SEBI (Issue and Listing of Debt Securities) (Amendment) Regulations, 2020 amended the SEBI (Issue and Listing of Debt Securities) Regulations, 2008 (“ILDS Regulations”) and vide the SEBI (Debenture Trustees) (Amendment) Regulations, 2020 amended the SEBI (Debenture Trustee) Regulations, 1993 (“DT Regulations”) in order to secure the interest of investors in listed debt securities and to enable debenture trustee(s) (“DT(s)”) to perform their duties effectively.
In furtherance to the abovementioned amendments, SEBI vide its circular dated November 3, 2020 has issued guidelines on creation of security in respect of listed debt securities and due diligence to be undertaken by DTs (“Circular”). The Circular will come into force with effect from January 1, 2021 for new issuances proposed to be listed post January 1, 2021.
The ILDS Regulations require an issuer of listed debt securities (“Issuer”) to disclose details regarding creation of security in the offer document (“OD”) or private placement memorandum (“PPM”)/ information memorandum (“IM”). Further, the DT Regulations require the DT to enter into a written debenture trustee agreement (“DTA”) with the Issuer to act as DT in respect of the issue of debt securities.
Creation of Security:
The Circular requires the Issuer to provide the DT with certain information while entering into a DTA in order to enable the DT to exercise due diligence with respect to creation of security, including the following:
Due Diligence by Debenture Trustee:
The DT is required to independently carry out due diligence with respect to the security and prepare all such reports and certificates, as applicable. Further, the DT is required to independently assess whether the assets for creation of security are adequate for the proposed issue.
The DT is also required to perform certain checks to verify that the assets provided by the Issuer for creation of security are free from encumbrances and that necessary consents have been obtained from existing charge holders, if any. In case a conditional consent has been issued by existing charge holders, the DT should intimate them via e-mail about the proposal to create further charge and seek their comments/ objections, which should be communicated to the DT within the next 5 (five) working days.
Further, in respect of guarantees, the DT is required to verify the relevant filings made on websites of Ministry of Corporate Affairs, stock exchange(s), CIBIL, information utilities etc. and also obtain necessary appraisal reports and financial certificates in respect of the guarantor.
The DT is required to issue a due diligence certificate as per the format specified in the Circular, provided that:
An Issuer filing draft OD or PPM/ IM through electronic book mechanism or serially printing PPM/ IM should submit the due diligence certificate as mentioned above to the stock exchange.
The records and documents pertaining to due diligence are required to be maintained by the DT for a minimum period of 5 (five years) from redemption of the debt securities.
Disclosures in the OD or PPM/ IM:
The following disclosures should be made in addition to those required under the ILDS Regulations:
Creation and Registration of Charge:
The Issuer should create the charge as specified in the OD or PPM/IM in favour of the DT and execute a debenture trust deed with the DT, before making an application for listing of the debt securities. The stock exchange will list the debt securities only upon receipt of the due diligence certificate from the DT in the format specified in the Circular. The charge must be registered with the relevant authorities, within 30 (thirty) days of creation of such charge.
Please find the copy of the Circular here.
This update has been contributed by Aastha (Partner) and Gayatri Dabir (Associate).
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